Friday, February 25, 2011

"Special Report -The biggest company you never heard of" (Glencore)

CI readers have certainly heard of Glencore, and $195 Billion revenue Vitol too.
A Glencore IPO, along with a Carlyle Group offering were two of the signs we said would cause us to move closer to the exits.
From Reuters:

By Eric Onstad, Laura MacInnis and Quentin Webb

BAAR, SWITZERLAND | Fri Feb 25, 2011 7:30am GMT

"Glencore is looked on as guys screaming into telephones, but it's more the dull old business of logistics," says a mining industry source, describing hours spent on the phone and organising trade-related paperwork. "Glencore trading floors are more akin to DHL offices than Goldman Sachs."

Yet within the commodities and mining sectors, Glencore is regarded with a mix of admiration and fear. "It's an incredibly performance-based culture -- investment banking times three, probably," says a second outsider.Glencore's client list is a roster of the world's largest firms including BP, Total, Exxon Mobil, ConocoPhilips, Chevron, Vale, Rio Tinto, ArcelorMittal and Sony, as well as the national oil companies of Iran, Mexico and Brazil and public utilities in Spain, France, China, Taiwan and Japan.

Physical commodities traders, like Glencore and its main rivals Vitol, Trafigura and Cargill, make their money finding customers for raw materials and selling them at a mark-up, using complex hedges to reduce the risk of bad weather, market swings, piracy or regime change.

Unlike Chicago traders who scream out bets on the future prices of orange juice or pork bellies, physical commodity traders negotiate prices and arrange shipments of cargo quietly, keeping their positions well hidden from others.

"It's modern financial engineering meshed with an old-fashioned commodity trading house," said John Kilduff, a partner at the hedge fund Again Capital LLC in New York. "It's amazing how this formula has flown under the radar for so long, as the profits and growth of these firms has been astounding."Glencore's profit after tax topped $4.75 billion in 2008, not far off its best year ever, 2007, when profit ran to around $5.19 billion. Even in the gruesome market of 2009, it raked in more than $2.72 billion.Performance is rewarded on a scale that would turn even Wall Street green, with bonuses for star traders running into the tens of millions. Glencore's 500 partners and key staff are sitting on a book value of $20 billion.

The secret, says the second outsider, is the traders' incredible focus. "I don't recall talking to any of these guys -- and I've spent a lot of time with them -- about anything other than business," he told Reuters. "I have no idea what sort of family life these guys have. This is everything."

Employees are hired young and expected to make a career at the group, where they are known as either "thinkers" -- bright number-crunchers who design the company's complex financial deals -- or "soldiers", the hard-driven traders who fight to win the transactions.

The company's 10 division managers are aged 37 to 52 and remain largely anonymous outside Glencore's business circles. "They're really bright guys, they are really focussed, they play to win every day," says a mining executive in North America. Or as the second outsider puts it: "They look like kids, really -- but they are incredibly impressive individuals."

Nobody more so than Chief Executive Ivan Glasenberg, a lean publicity-shy operator whose sport is race-walking. Glasenberg, 54, grew up in South Africa and has been a champion walker for both South Africa and Israel. Each morning he runs or swims, often with colleagues. "The thing about Ivan, he can fly in and meet presidents of countries but he also talks to the guy on the trading floor," said Jim Cochrane, chief commercial officer and executive director of the Kazakh mining group ENRC.

After earning an MBA at the University of Southern California in 1983, Glasenberg was hired by Glencore as a coal trader in South Africa. He does not suffer fools and has a fiery temper, but is also intensely charming and has a sharp memory for details about people, according to people who know him. Despite being a billionaire in charge of thousands of staff, "this is a guy that picks up his own phone," the second outsider said.

THE MARC RICH LEGACYGlencore likes to promote from within and build a kind of closed, self-sustaining network of senior traders, a culture encouraged by the company's founder Marc Rich. Not that Glencore likes to mention Rich, a figure so notorious that he's not even mentioned in the official history on Glencore's website.Rich escaped Nazi Europe as a seven year old, and grew up in the United States. He launched the trading group which would become Glencore under his own name in 1974....MUCH, MUCH MORE
(this is page 2 of 7, the link takes you to page 3, here's page 1)
Previously: